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Business and Economic profits

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A woman managing a photocopying establishment for $25,000 per year decides to open her own duplicating place. Her revenue during the first year of operation is $120,000, and her expenses are as follows:

Salaries to hired help $45,000
Supplies 15,000
Rent 10,000
Utilities 1,000
Interest on bank loan 10,000

Calculate (a) the explicit costs, (b) the implicit costs, (c) the business profit, (d) the economic profit, and (e) the normal return on investment in this business.

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Solution Summary

The solution calculates implicit costs, explicit costs, economic profits and normal profits in the given case.

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(a) the explicit costs,
Explicit costs are the actual business costs. Here the explicit costs are

Salaries to hired help $45,000
Supplies 15,000
Rent 10,000
Utilities 1,000
Interest on bank loan 10,000

Total Explicit ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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